Class action suit in US hits TCS shares at home

Shares of Tata Consultancy Services were jolted on Tuesday after a US district court granted employees of the company permission to bring a class action suit against the technology giant on allegations that it had breached employee contracts and violated California’s labour laws.

TCS, India’s biggest software exporter, was quick to dismiss the case as without merit while vowing to fight the case.

A class action suit is a lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group. It is typically a US phenomenon involving litigation to claim compensation against unfair activity or discrimination.

“We have received the order of the US district court,” the company said in a statement. “This is an order only on one procedural matter and does not address the merits of this case. TCS continues to believe that when this matter concludes, the court will find that the plaintiff's claims are without any merit.”

Contrasting the rising benchmark indices, TCS’s shares closed down 1.04% at R1,178.95, even though analysts said the damage, if at all, would not be significant.

The class action suit will not be a big financial liability for the company. TCS shares were down partly due to the sentimental reaction to the news of the class action suit, but mainly it was due to the speculation on the street that the company’s fourth quarter results may not meet expectations,” said Ankita Somani of Angel Broking.

In the suit, two former employees accused the company in 2006 of forcing all non-US-citizen workers to sign over their US Federal and state tax refund cheques to the company.

The implication of this stand is clearly that the money legally belonged to them. Tata also deducted their Indian wages from their compensation, the suit alleged.

The judge authorised one class of plaintiffs, comprised of non-US citizens who worked at the company between 2002 and 2005, to sue for contract violations. The court certified a separate class of employees to bring claims under California labour laws.

“More than 10,000 current and former Indian nationals working for Tata in America now may have their day in court,” Kelly Dermody, a lead attorney for the employees, said in a statement.

Satyam is another Indian IT company that has faced class action suits. The scam-hit company agreed to pay $125 million to settle one lawsuit in America last year. Now, with the merger of Tech Mahindra and Mahindra Satyam on its way, the combined group faces another class action suit worth $68 million from the asset management firm, the Aberdeen Group.